CMS’s move to cut Medicare payments made through the 340B drug discount programs would see the biggest impact in California, New York and North Carolina, according to an analysis by Avalere Health, though for most hospitals it will reduce their total Part B revenue by less than 5 percent.
The analysis said the impact on a particular state depended on the number of Medicare beneficiaries, how many drugs are prescribed through Part B and how many facilities receive 340B discounts by being serving low-income populations as disproportionate share hospitals (DSH). Overall, those facilities will receive $1.6 billion less from Medicare as CMS lowered the reimbursement rate to the average sales price (ASP) plus 6 percent to ASP minus 22.5 percent.
“This payment change represents a significant reduction in drug-related revenue and profitability for some hospitals, and will require immediate action to plan for 2018 budgets,” Dan Mendelson, president at Avalere Health, said in a press release. “At the same time, the payment change also delivers meaningful savings to Medicare beneficiaries who are responsible for paying a portion of their drug costs.”
The five largest cuts to providers would be seen in:
- California: $126.7 million
- North Carolina: $73.2 million
- New York: $62.5 million
- Georgia: $59.3 million
- Pennsylvania: $54.6 million
Because the cuts are being implemented concurrent with an increase in non-drug payments, most hospitals will see “will have very minimal changes to their revenues.” 62 percent of all DSH hospitals—631 facilities in all—will see a reduction of less than 5 percent of their total Part B revenue. 32 percent (325 hospitals) will have Part B revenue reduced by 5 to 9.9 percent, while 6 percent (59 hospitals) will have payments reduced by 10 to 23 percent of their total Part B revenue.
“Given the lean margins at most hospitals, those hospitals that will have more than 10 percent reductions in revenues could face serious financial hardship,” said Fred Bentley, vice president at Avalere.
Hospital groups have pledged to fight the cuts, with the American Hospital Association, America’s Essential Hospitals and the Association of American Medical Colleges suing over the change and arguing CMS is going against what Congress intended when it created the 340B program. Some 228 members of the U.S. and 57 members of the had backed up parts of the hospitals’ position in letters sent to CMS in September.
Additionally, a bill introduced by Rep. David McKinley, R-West Virginia, would stop CMS from implementing the cuts has been introduced and has so far attracted 141 cosponsors.
The group 340B Health sent a letter to House and Senate leaders in both parties on Dec. 13 urging them to get behind the legislation.
“If implemented, this payment reduction will cause tremendous disruption and loss of services for low-income and rural patients,” the group wrote.
The cuts do have support among other industry groups, particularly the pharmaceutical lobby Pharmaceutical Research and Manufacturers of America (PhRMA). It argued the 340B program incentivized the shift of care from physician offices to hospital-owned clinics. The Community Oncology Alliance also supported the change, saying “mega hospital corporations” have benefitted from a program intended to help safety-net facilities.